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Author: Ashwini K Swain, Delhi

After the global financial crisis governments were asked to support industrial activities, and eventually many states decided to restructure their industrial policy.

After all, there is a new reason for industrial policy — the problem of climate change.

Governments now concentrate on green industrial policy, which involves essential policy changes to price resource consumption. It is different from conventional industrial policy in two ways: first, it requires different policy instruments; second, it involves stronger state engagement in markets. India, especially, seems to be pursuing green industrial policy, but will it actually lead to green growth and sustainable development?

India prioritised the production of clean energy as an alternative to fossil fuels to meet rising industrial energy demand, impose energy efficiency measures to tame demand, and set a target to raise its renewable energy capacity to 74 gigawatts by 2022, a figure that includes 22 gigawatts of solar capacity. With an installed capacity of 27.7 gigawatts of renewable energy (13 per cent of total installed capacity), the country is already a global leader. Over the 12th five-year plan (2012–17), it aims to install renewable energy facilities able to produce 30 gigawatts of power. The federal price tag is around US$4 billion, but the government is relying a great deal on the private sector. The state’s role has been to set up a favourable policy environment through regulation, incentives and R&D support.

For example, each subnational electricity regulatory commission has set a specific ‘Renewable Purchase Obligation’ for their utilities companies so that corporations source electricity from renewable sources. In the first year of the scheme, fiscal year 2009–10, the national target was set at 5 per cent. The target is now 8 per cent and will increase 1 per cent a year for the next seven years. The aim is for utilities companies to procure 15 per cent of their electricity from renewable energy sources by 2020. If the companies fail to meet their target they have to purchase a ‘Renewable Energy Certificate’, which is issued to producers of renewable energy who sell their product on the open market.

So renewable energy generators have a choice: they can trade electricity at a preferential tariff or trade their certificates separately after selling electricity at the market rate. India is also helping generators and manufacturers with R&D and giving tax credits to companies that import renewable energy technology like solar panels.

India’s target for energy efficiency is equally ambitious. It aims to save 10 gigawatts by 2014–15 and thus avoid installing 19 gigawatts of additional generation capacity. Again, India is using the market to achieve its objectives. Energy-intensive industries, which account for 60 per cent of India’s total primary energy consumption, will have to meet certain efficiency targets. Those who achieve gains beyond their target will be rewarded with an energy saving certificate; those who fail to meet their target can buy certificates to make up the difference or face a financial penalty.

Simultaneously, the state is trying to transform the market to promote the production and use of energy-efficient appliances in designated sectors. While manufacturers are being encouraged to make super-efficient appliances, products are being labelled to raise consumer demand for efficiently produced goods.

While in the past, the Indian state retained control over the economy, with its current industrial policies the government is letting the market do the job. India realises that on its own it cannot transform the energy market so it is seeking to build up market players, pick winners and offer incentives to hasten development.

If India achieves its solar energy target, 95 million fewer metric tons of CO2 will be released into the atmosphere in 2022, which would be about 2.6 per cent of India’s total emissions in that year. By 2050, if solar development is continued at the same pace, Greenpeace estimates that 434 million fewer metric tons of CO2 will be released every year. At the same time, the efficiency target could prevent the release of 98 million metric tons of CO2 annually.

Though India has ambitious targets and policies in place, it is too early to say whether it will be successful in reducing greenhouse gas emissions. India will have to overcome its finance gap and lack of market transparency. Access to private finance is crucial for the development of a clean energy industry, but current interest rates are too high and financing institutions remain reluctant to invest. The government does not yet have a comprehensive strategy so that new companies can access money to invest. The lack of market transparency that prevails in the sector may result in rent-seeking and market distortion. A study by the Centre for Science and Environment reveals how a major conglomerate has subverted the rules to acquire a stake in the solar incentive scheme that is much larger than legally allowed. The state needs to provide real-time information that the public trusts and can use to hold it and private companies accountable.

These challenges are not insurmountable. India will need to improve state–business relations and the capacity of its private sector, and untangle interests from the policies that control them. But if it is successful India could lay out a path for green growth in developing countries.

Ashwini K Swain is a Delhi-based independent researcher and energy & climate policy analyst. He tweets @AshwiniKSwain.

Author: Le Hong Hiep, Vietnam National University and UNSW Canberra

Since 1991, comprehensive Vietnam–China relations have developed but remain constrained by the South China Sea (SCS) disputes.

What makes the disputes highly relevant for future bilateral relations is that they have proven intractable, leaving the possibility of an eventual solution a matter of almost infinite uncertainty.

The intractability of the disputes is rooted in their complicated nature as well as setbacks in possible settlements.

First, both countries’ claims, especially those regarding the sovereignty of the Paracels and the Spratlys, are grounded in each country’s historical evidence. The assessment of the validity of this evidence is both complicated and painful, but it is not impossible if both sides submit themselves to a jointly agreed competent arbitration authority. However, China has always refused to seek international arbitration regarding its SCS disputes, precluding an important option for permanently solving the disputes peacefully.

Second, international legal rules governing the arbitration of maritime claims in the case of the SCS disputes are controversial and not well-defined. This is due to the different views on the status of features forming the two archipelagos and their maritime entitlements. In its joint submission with Malaysia to the Commission on the Limits of the Continental Shelf in early May 2009, Vietnam implicitly held the position that features in the two archipelagos do not qualify as islands, thus having no exclusive economic zone (EEZ) and continental shelf of their own. But in its Note Verbale to the UN Secretary General protesting the joint submission, China held the position that at least a number of features in the SCS are qualified as islands and entitled to their own territorial sea, EEZ and continental shelf.

These differing views can be settled by an arbitrational process. But as the judgments offered by such a process are likely to be based on the interpretation of Article 121 of the UN Convention on the Law of the Sea (UNCLOS), rather than concrete evidence, not only China but also Vietnam may feel discouraged from taking that path for fear of being disadvantaged.

Third, the dispute is made ever more intractable by the nine-dotted line that China has been using to assert its claims, the meaning and legal basis of which China has never clarified. China’s above-mentioned Note Verbale added some light to China’s claims and the meaning of the line but failed to completely make it clear.

The Note Verbale asserted that China not only had ‘sovereignty over the islands in the SCS and the adjacent waters’ but also enjoyed ‘sovereign rights and jurisdiction over the relevant waters’. The terms ‘adjacent waters’ and ‘relevant waters’ are ambiguous, leaving one to wonder whether these waters correspond to those defined under the UNCLOS or whether they refer to the entire water column enclosed by the nine-dotted line. As the nine-dotted line cuts deep into Vietnam’s EEZ and continental shelf, the ambiguity around its meaning makes it difficult to define clearly the disputed areas and further strains efforts to manage and settle the disputes.

Due to the disputes’ intractability, various incidents in the SCS have made bilateral relations ‘warm outside but cold inside’. The most recent notable ones include the cutting of a Vietnamese seismic survey ship’s cable by Chinese maritime surveillance vessels within Vietnam’s EEZ in May 2011, China’s offering of nine blocks within Vietnam’s EEZ to international bidders in June 2012, and the firing on a Vietnamese trawler by a Chinese patrol ship near the Paracels in March 2013.

Incidents like these have generated incessant tensions between the two countries. In Vietnam, following the cable cutting incident, anti-China demonstrations broke out, and Vietnamese leaders have spoken strongly against China’s aggression. In China, for example, following the firing incident in March 2013, the Global Times ran an op-ed stating that ‘the Philippines and Vietnam would face more troubles if they choose to seek fierce confrontation with China’.

One useful way to see how constant the SCS disputes present themselves as an irritant to bilateral relations is to look at statements issued by the Vietnamese Ministry of Foreign Affairs (MOFA) spokesperson. For example, in 2012, bilateral disputes, such as China’s unilateral fishing moratorium, featured prominently in 20 out of 49 press releases and statements of the MOFA spokesperson throughout the year.

If the frequency of the mention of SCS disputes in MOFA statements is used as a barometer for Vietnam-China relations, then these disputes are the most important factor shaping the mood for the relations; and that mood, at least over the last five years, has been going from bad to worse. So, if not carefully managed and eventually resolved, the disputes will continue to put the substantive cooperative ties between the two countries in other fields at great risk.

Le Hong Hiep is a lecturer at the Faculty of International Relations, Vietnam National University, Ho Chi Minh City, and is a PhD candidate at the University of New South Wales, Australian Defence Force Academy, Canberra.

A longer version of the article was first published here by the Institute of Southeast Asian Studies.

Author: Frans-Paul van der Putten, Clingendael Institute

One of the most enduring aspects of the global system of international relations has been the divide in terms of power and wealth between the West and the developing world. The rise of China, which combines the features of a developing country with those of an emerging superpower, is affecting the West’s position in the developing world.

The main issue is whether or not liberal values will prevail, especially in the economic sphere.

Because in China the role of the state in the economy is larger than in the west, Chinese firms abroad potentially benefit more from home government support than their western counterparts do. The Chinese government has a broad set of tools to support China’s business interests abroad — adjusting of currency exchange rates to stimulate exports, providing cheap credit for business expansion, and assisting in the financing of overseas infrastructure projects carried out by Chinese firms.

Varying economic systems make a difference as far as foreign investment is concerned. In those countries where the host government intervenes in the economy, business-to-government contacts carry a greater weight than in less-regulated markets. In economies with an interventionist state, companies that are backed directly by a strong home government are at an advantage. Also, at the international level, countries with semi-free markets will not give much support to standards that address the competitive relationship between free market economies and state-controlled economies. So it is in the interest of western countries that developing countries move towards market economies.

Different political systems too affect foreign investment, though to a lesser degree than economic systems. In countries without a liberal democratic system, the degree of protection of foreign investors against political risks often depends on their relationship with the host government. Here again foreign companies that are directly backed by a powerful home government may have a competitive advantage over foreign investors that lack similar support.

The West and China take different positions on intervening in developing countries. The United States and other western countries have long promoted free markets and political liberalism in developing countries through the World Bank, the IMF and other western-dominated international organisations. But China’s position is that each developing country must be free to choose its own development path. So from the Chinese perspective, it is not desirable that multilateral organisations promote liberal values in the developing world. In China’s worldview political-economic diversity at the international level is a norm in international relations, and this challenges the western drive for ideological uniformity.

Chinese leaders have referred to this notion as ‘harmony with diversity’. Among other instances, the former premier Wen Jiabao did so in a speech he delivered at the Arab League in 2009. This concept works in two ways for China. Its most important function is to defend China against western interference. But it also signals to developing countries that China is not a threat and that it is different from the western powers, which try to export their ideology.

Though the concept of international diversity protects China from the West, Beijing’s support for this norm is not an opportunistic ad-hoc policy that China will abandon once it no longer feels threatened by the United States and its allies. First, China has a deeply rooted foreign policy tradition that lacks the urge to spread its own political-economic model. Second, maintaining diversity as a norm increases Chinese influence in the developing world while decreasing that of the West.

As China becomes more influential in the sphere of global governance, it is increasingly capable of promoting political-economic diversity as an international norm. It is likely that China will continue to block western initiatives aimed at promoting liberal democracy and economic liberalism. China might lend support to interventionist initiatives at multilateral forums, but only on an ad-hoc basis and in spite rather than because they could result in political change. Also, for pragmatic reasons, in particular instances China may favour host-country policies for a better investment climate that correspond with a liberal economic agenda.

China furthers its concept of ‘harmony with diversity’ in international organisations. In organisations such as the UN Security Council, the IMF and the World Bank, China is an increasingly influential member. At the same time, Beijing supports the creation of alternative organisations that challenge the western-dominated forums, such as the G20 and the BRICS development bank. It may be expected that the Chinese government will use its influence in all of these multilateral forums and organisations to make sure that these do not represent a specific ideology (such as liberalism) and that they discourage or even prevent countries from intervening in other countries in order to spread a particular ideology (again liberalism).

So China’s contribution to the shaping of the world order may be to ensure that this order allows for and protects the diversity of political-economic systems. The more China succeeds in making the institutions of global governance ideologically ‘neutral’, the more difficult it becomes for the West to export liberal democracy and economic liberalism to the developing world. This changes the competitive context in developing economies to the advantage of Chinese business interests.

Frans-Paul van der Putten is a senior research fellow at the Clingendael Institute, The Hague.

This contribution is based on an article in Global Policy 4(1), 2013.

Author: Sandy Gordon, ANU

Pakistan has just experienced the first democratic change of government in its history.

It did so despite a violent campaign by religious extremists to derail the election, and targeted at secular-oriented parties such as the ousted Pakistan People’s Party (PPP). 

However, the victory by Nawaz Sharif’s Pakistan Muslim League-Nawaz Party (PML-N) is still a genuine win. The 60 per cent voter turnout is excellent for Pakistan, with Pakistanis defying the religious extremists to cast their votes and have their say.

The election results show that voters were clearly fed up with the PPP’s corruption and poor economic management. The country has suffered from serious electricity cuts and an anaemic economy. It is burdened by a rapid population growth rate, fuelled by poor levels of general and especially female literacy. Environmental problems in the heavily irrigation-dependent economy are also growing.

At the time of writing, former cricket star turned politician Imran Khan had won about 30 seats, which roughly equals the PPP. It is likely Sharif will be able to reach the necessary 137 seats to govern in his own right by attracting independent support. He may nevertheless seek a deal with Khan in order to provide additional stability.

Although the electoral base of the new Sharif government is mostly confined to Punjab, it has the benefit of being far more stable than the wobbly coalition it replaces.

Sharif, who is a self-made billionaire in the steel industry, will be more market oriented than Pakistan President Asif Ali Zardari. Pakistan will have a less-regulated economy and economic growth will likely pick up given a reasonable international environment. However, judging by Sharif’s previous stint in power, don’t look for a marked diminution in corruption or ‘money politics’.

Pakistan’s regional and security relationships are also challenging. Sharif campaigned on the basis of lessening Pakistani dependence on the United States. Even though Washington is winding down the US military commitment in Afghanistan, it needs Pakistan to achieve an ordered withdrawal. This is a massive logistical exercise. It would be greatly complicated should the United States be forced to use the alternative route through the Central Asian Republics and Russia. Washington also needs Pakistan to ensure that a post-NATO Afghanistan is not unduly destabilised from across the Pakistani border.

Sharif may well temper his supposed antagonism to the United States. He will likely be encouraged to do so by the Pakistani military. He has no love for the military and was ousted in 1999 by then Chief of Staff Pervez Musharraf and sent in to exile. But he will have little choice but to work with them given their importance.

Despite hiccups in the relationship between the United States and the Pakistani military, such as the raid that killed Osama bin Laden, the two still have an important working relationship, including in the provision of aid. Sharif will no doubt give the impression of distancing Pakistan from the United States, but will probably allow himself to be convinced on crucial issues like continuing supply and exit through Karachi.

Even though drone attacks now originate from Afghanistan rather than Pakistan, Sharif may force the United States to curb such attacks on Pakistani soil since this is an especially high-profile issue in Pakistan. If the US route through Pakistan is cut, it may be a temporary measure as a way of negotiating a stop to the attacks.

The really interesting effect of the change of government could be on Pakistan-India relations. Sharif was born in what is now Indian Punjab, and the PML-N is far better regarded by the so-called ‘religious right’ than is the PPP. Should the PML-N emerge as the majority party in its own right, its hand would be further strengthened. These factors could give Sharif a freer hand to deal with India than his predecessor.

Both Sharif and Indian Prime Minister Singh have been encouraging and have already had a long talk by phone. Any major change in the relationship would need to be achieved at the political level and this election could prove a circuit breaker.

But there are also some profound impediments to a major breakthrough. The military needs a continuing level of antagonism against India to maintain its influential role in Pakistani society. Pakistani Islamist jihadist groups like Lashkar-e-Toiba (LeT) have been attacking India from across the border for many years. The attacks on Indian Kashmir are clearly sponsored and supported by the Pakistani state, especially the military intelligence, the ISI. Attacks on other parts of India — such as that on Mumbai in 2008 — are also mounted from Pakistani soil.

The leaders of groups like the LeT seem to function in Pakistan with impunity. India is both threatened and outraged by this situation and it has become, along with the obvious and major issue of Kashmir, a serious impediment in improved relations.

Can Sharif do better at reining in these groups than his predecessor? Will he be willing to do so? Can he work with the military to ease relations with India? These remain important and unanswered questions as we move into the Sharif government.

Sandy Gordon is a Visiting Fellow at the Regulatory Institutions Network, College of Asia & the Pacific, the Australian National University.

This article was first published here by the ANU College of Asia & the Pacific.

Author: Robert A. Manning, Atlantic Council

Successful summits tend to be more about symbolism than substance.

South Korean President Park Geun-hye’s summit with US President Barack Obama certainly had its share of symbolism:the first foreign trip of South Korea’s new first woman President; the 60th anniversary of the US–ROK alliance; and US–ROK messages to North Korea, Japan and China.

But President Park’s US trip rose above mere symbolism on a number of important fronts. It marked a deepening institutionalisation of the US-ROK alliance beyond defence into a larger partnership encompassing economics and global cooperation.

In her one-on-one meeting with Obama, her well-received speech to a Joint Session of the US Congress, and her interview with the Washington Post, Park outlined her approach to North Korea — one that was endorsed by Obama and in the US–ROK Joint Statement.

President Park is pursuing a different approach to Pyongyang than her predecessor, Lee Myung-bak, though they are from the same conservative political party. During Lee’s tenure, North–South ties hit new lows as confrontations such as the sinking of the ROK naval ship, Cheonan, and the shelling of Yeongpyeong Island in 2010 inflamed tensions and angered the South Korean public. Lee’s hardline policy and demand for reciprocity from the North was a shift from the previous ROK ‘Sunshine policy’, begun by Kim Dae Jung, which offered aid and cooperation to North Korea despite it being largely a one-way street.

Instead, Park wants to pursue a ‘trust-building’ process with North Korea, maintaining deterrence but keeping a window for dialogue and cooperation and humanitarian assistance, hoping to induce North Korea to comply with its previous denuclearisation obligations. This approach was explicitly supported by Obama. Park referred to a Korean saying, that ‘it takes two hands to clap’. Obama stressed that there was no distance between the United States’ and South Korea’s policies and that ‘The days when North Korea could create a crisis and elicit concessions … are over’.

President Park, according to news reports, raised the troubling issue of Japanese revision of history in her discussions with Obama and publicly in her address to the US Congress, and in an interview with the Washington Post. Park told the Post that she was ‘disappointed and frustrated at the lack of progress in relations with Japan’. She complained that ‘the Japanese have been opening past wounds and have been letting them fester, and this applies not only to Korea but also to other neighboring countries’. While she did not mention Japan by name to the US Congress, her speech did say that ‘differences from history are widening’, adding that ‘those who are blind to the past, cannot see the future’.

In regard to China’s support for North Korea, Park noted some changes in Beijing’s policy when Xi Jinping took office. She said in an interview that China could exert more influence to change North Korean behavior, but that if North Korea ‘chooses not to take the right path’ then she would ask China to rethink whether its current policy toward North Korea, ‘is sustainable’.

One little-noticed initiative from the Park visit was her call to create a new multilateral dialogue process in Northeast Asia to address the deficit of political/security cooperation. Park suggested it could start focusing on environmental issues, nuclear safety, counterterrorism and disaster relief and then build a wider agenda. She appeared to be thinking of the five parties in the now lapsed six-party talks, but added that North Korea might be invited.

While the United States and South Korea reaffirmed commitments to implement the US–ROK Free Trade Agreement (FTA), it was unclear whether a Northeast Asia grouping would address trade or whether the issue of Seoul joining the Trans-Pacific Partnership (TPP) was discussed. The US–ROK FTA is a high-quality accord largely compatible with the goals of the TPP, the negotiations for which Japan has recently agreed to join.

At a time of tension and uncertainty in Asia, the Park trip to the United States clearly was about more than symbolism. But whether the diplomacy will yield more than modest progress in addressing the North Korea problem or frayed ROK–Japan or Sino–Japanese relations is unclear. Yet the Park trip accomplished several noteworthy things: it clearly energised US–ROK relations; it has put some interesting new ideas on the table for Northeast Asia; and, not least, it showcased President Park Geun-hye as an assertive new Asian leader determined to meet the challenges facing Northeast Asia.

Robert A. Manning is a senior fellow of the Brent Scowcroft Center for International Security at the Atlantic Council. He served as a senior counselor to the Under Secretary of State for Global Affairs from 2001 to 2004 and a member of the US Department of State Policy Planning Staff from 2004 to 2008.

Author: Ganeshan Wignaraja, ADBI

Mega-regional trade deals are in vogue.

Negotiations for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are grabbing headlines around the world. Meanwhile, Asia’s own mega-regional trade deal — the Regional Comprehensive Economic Partnership (RCEP) — is quietly being negotiated. But it deserves more press: the RCEP could create the world’s largest trading bloc and have significant implications for the world economy. So what would the RCEP cover and who will it benefit? What are the barriers to success?

The RCEP was first mooted at the November 2011 ASEAN leaders summit in Bali. While the partnership would expand ASEAN’s role in coordinating regional trade, the RCEP’s key purpose is to reconcile two long-standing proposals into a large region-wide trade agreement: the East Asian Free Trade Agreement, which included ASEAN, China, Japan and South Korea, and the Comprehensive Economic Partnership, which added Australia, India and New Zealand. The RCEP bridges the two proposals by adopting an open accession scheme. Negotiations among the 16 parties began in early 2013 and are scheduled to conclude by the end of 2015.

The parties say that their goal is to achieve a modern and comprehensive trade agreement, and the agenda covers trade in goods, services, investment, economic and technical cooperation, and dispute settlement. Compatibility with WTO trade rules on goods and services is also a principle for RCEP negotiations.

Because the RCEP will contain three of the largest economies in the world — China, India and Japan — it is globally important. The bloc represents 49 per cent of the world’s population and accounts for 30 per cent of world GDP. It also makes up 29 per cent of world trade and 26 per cent of world FDI inflows. Conservative estimates using various computable general equilibrium models suggest that if the RCEP were implemented it would bring large income gains to the world economy of between US$260–644 billion in a decade or so.

The RCEP can help regionalise the sophisticated global production networks that make Asia the world’s factory. It will also reduce the overlap among Asian FTAs, lest Asia becomes a confusing ‘noodle bowl’ of multiple trade rules. If a comprehensive agreement can be reached, trade barriers in Asia will come down and the new rules will be consistent with WTO agreements. Rules of origin could be rationalised and made more flexible, and be better administered through electronic means. In the area of investment rules, where no WTO agreement exists, the RCEP will promote easier FDI flows and technology transfers by multinational corporations.

The RCEP is less ambitious than the TPP and the prospect of development assistance for adjustment means developing countries will find it easier to join. Additionally, RCEP, along with the TPP, will influence the emerging regional trade architecture towards achieving a free trade area of the Asia Pacific.

It will not be easy to realise these benefits. First, negotiators from large countries may find it difficult to respect the central role of ASEAN in RCEP. Second, there is a risk that the RCEP can only achieve limited trade and investment liberalisation if parties with different levels of development and interests negotiate exclusions to protect sensitive sectors. Third, the RCEP will need to improve its coverage of new trade issues such as competition policy, environment and labour standards. These problems are increasingly being addressed by the most comprehensive trade agreements in Asia and internationally. Fourth, there is a risk that firms, particularly small and medium enterprises, may under-use the RCEP due to a limited understanding of its legal provisions. Fifth, many countries will find it difficult to pay for physical infrastructure and improve trade facilitation so goods and services can be transported smoothly across RCEP member countries. Sixth, it is possible that the RCEP and other mega-regional FTAs may exacerbate the divergence between regional and WTO trade rules. The WTO could become less relevant to global trade governance.

RCEP negotiations should focus on a template with the best features of existing Asian FTAs (including existing ASEAN+1 FTAs), set a clear timetable for concluding negotiations, and actively involve the private sector in the negotiations. Afterwards, significant outreach and business services are needed for small and medium enterprises to lower the costs of using the RCEP. Expanding the Asian Bond Market Initiative and supporting public–private partnerships are also useful to increase regional infrastructure financing.

Above all, the RCEP and other large regional FTAs will show that the WTO needs a broader agenda. It has to acknowledge new opportunities like global supply chains and the regional liberalisation of trade.

Ganeshan Wignaraja is Director of Research at the Asian Development Bank Institute, Tokyo.

Author: Dmitri Streltsov, MGIMO University

On 29–30 April 2013, Prime Minister Shinzo Abe paid a visit to Moscow.

It was the first official visit of a Japanese prime minister to Russia since Junichiro Koizumi’s trip to Moscow in January 2003. In many ways, the recent summit can be seen as not just an important meeting but even as a landmark event in the history of Russo–Japanese relations.

Changes in the international political environment in Northeast Asia over the last year have proved to be beneficial for relations between the two countries. Against the backdrop of rising tension on the Korean peninsula, Russia and Japan came to a mutual understanding of the need to strengthen the political component of their relationship. The growing threat of military conflict arouses great concern not only in Japan, for which North Korea has become a sort of a geopolitical ‘bugbear’, but also in Russia, which shares a land border with North Korea.

Sharpening territorial spats in the South and East China Seas are also contributing to the general trend. Although these disputes do not directly affect Russia, Moscow does not want territorial issues to spiral into an open armed conflict. Emphasising its neutrality toward territorial problems, Moscow has shown interest in setting up an international dialogue in Northeast Asia for the purpose of discussing issues of military security. So Moscow needs to retain Tokyo as an ally in order to achieve this strategic goal.

As for Japan, against the backdrop of worsening territorial disputes with China and South Korea, it needs stability and predictability with Russia around the issue of the territorial demarcation of the Kuril Islands. In comparison to other partners in Japan’s territorial disputes, Russia plays the role of a ‘good cop’, helping Tokyo to overcome the complex of being a surrounded fortress. Political stabilisation in both Russia and Japan has created a climate in which their relationship can improve. Election fever has given way to a period of relative peace in domestic politics. There is now an opportunity for both countries to re-evaluate the position of the partner state in its national priorities and to determine how best to engage with each other strategically.

The visit was also vital for strengthening personal ties between the leaders of the two countries. Historical experience shows that personal diplomacy is an important factor in the foreign policies of both Russia and Japan. On the verge of the upper house elections, the Japanese Prime Minister Abe badly needed to turn his visit to Moscow into a success story. So he sought to use the summit meeting with Vladimir Putin to boost his image with the voters at home — in the eyes of the Japanese he was to become a sort of ‘conciliator’, in contrast to his Democratic Party predecessors who had managed to ‘spoil’ Japan’s relations with almost all its neighbours.

As far as Putin is concerned, the summit can be seen as a part of Russia’s strategy of diplomatic and economic rebalancing towards Asia. Putin’s era of successful personal diplomacy in the 2000s is over, so setting up a personal bridge with the Japanese leader will also further his confidence in handling diplomatic matters.

Apart from image-making, each of the parties pursued their specific goals. For Russia, it was the discussion about cooperation in the gas sector. Moscow is in need for technical and financial support for a number of investment projects in the gas sector with a total value of almost US$40 billion, including the development of the gas fields in Yakutia and the Irkutsk region, the construction of a 3200 kilometre-long gas pipeline from Eastern Siberia to Vladivostok, and the construction of a liquefied natural gas plant near Vladivostok. Russia is also interested in Japanese investment in other spheres including urban planning, the automobile industry, agriculture, ecology and medicine.

On the other side, Japan is interested in pushing forward in the negotiations on the peace treaty. It is noteworthy that before the visit the Russian side had signalled its readiness to resume talks on the issue. They implied it was not just a primitive transaction of ‘gas in exchange for territory’ but a voluntary decision aimed at establishing a political environment in which economic cooperation should gain new momentum. During the summit, the leaders agreed to order their foreign ministries to ‘accelerate talks in order to find a mutually acceptable decision’.

It is clear that the visit was ‘doomed to succeed’. Japan and Russia have experienced the benefits of relatively good mutual relations in the past. Yet in the past three years, they were able see how a less-than-successful relationship negatively affected their own national interests. Hopefully, the potential of the new bilateral relationship created by the official visit will be realised soon.

Dmitri Streltsov is Head of the Department of Asian and African Studies, MGIMO University, Moscow.

This is an abridged version of an article which appeared here in Russia Beyond the Headlines.

Author: John Gillespie, Monash University

The Vietnamese government is currently mulling over six-million public responses to proposed amendments to the Land Law. Most responses concern land grabs by provincial officials, which have dramatically increased since the law’s enactment in 2003.

In the last decade, the area of land taken from farmers has reached one-million hectares, significantly greater than the 810,000 hectares redistributed during the socialist land reforms in the 1950s. Currently land grab cases comprise over 30 per cent of all land disputes reaching officials and the courts. 

Since the law’s enactment, the central government has incrementally moved land compensation payments closer to market prices. Provincial authorities are now required to pay ‘close to the price of land-use right transfers in real estate markets’. Studies by the World Bank show that even with a falling real estate market, land values still run well ahead of compensation payments. But the government faces a more intractable problem. Widespread public discussion about land grab cases has not only amplified resentment about the windfall profits made by investors and corrupt officials from land conversions but also armed farmers with tactics that increase their bargaining power.

A range of measures to placate farmers and take the heat out of land disputes has been debated within the party and more broadly in the official media and in unofficial blog sites. The committee overseeing constitutional reforms has now ruled out the most radical proposal — recognising private land ownership. Although the 1993 and 2003 Land Laws recognised private interests to sell, mortgage and bequest land, they retained state prerogative powers over private land-use rights. Reformers hoped that private land ownership would send a clear message to officials that citizens own robust proprietary interests that are enforceable against the world, including the state.

Two other proposed land reforms are currently being debated in the lead-up to the May 2013 sittings of the National Assembly.

One proposal aims to circumscribe state prerogative powers without adopting private ownership. Currently, officials exercise trung dung or ‘withdrawal’ rights over farm land. This prerogative power treats private land-use rights like licences that the government can extinguish at will. Proposed amendments to the Land Law 2003 aim to replace these powers with thu hoi co boi thuong or ‘acquisition with compensation’, a policy that would bring land grabs closer to the western principle of eminent domain by recognising that residual proprietary rights can only be taken with compensation.

A second proposal to remove the government’s powers to compulsorily acquire land for private socioeconomic developments would strike directly at the source of land corruption. Presently the government can withdraw land use rights for socio-economic purposes like privately funded industrial parks and condominiums, as well as for public purposes, such as transport infrastructure and hospitals. Many of the most complex land grab cases involving violent clashes with the police, such as the Golden Hills apartments in Da Nang and the Van Giang Eco-Park near Hanoi, involved land that had been acquired for private developments. As recent World Bank studies show, corrupt collusion between private developers and state officials is behind many of the most egregious land management disputes. To the surprise of many observers, the government — which is often closely implicated in land disputes — is actually in favour of removing its powers to compulsorily acquire land for private developments. But Nguyen Van Giau, Chair of the Economic Committee of the National Assembly, strenuously opposes this initiative. He argues that such powers are required to safeguard new industrial parks and associated infrastructure — a view that reflects the party’s overriding preoccupation with national economic development and industrialisation. The National Assembly in May will determine which view prevails.

In the meantime, the debate so far suggests that party thinking about land law has continued its incremental shift from the socialist notion of ‘people’s ownership and state management’ to a more individualised conception of private proprietary rights. Although private land ownership has been ruled out for ideological reasons, the government is prepared to strengthen the legal rights of land users—a reform that in theory could support farmers in their struggles  with state officials and rapacious private investors. The socialist idea that land is a special commodity is giving way to state recognised private land markets. Government officials also look set to lose powers to compulsorily acquire farm land for private investments — the source of the many complex land disputes. What remains unresolved is the lack of independent institutions, such as courts, that are willing and capable of enforcing private land rights against the state.

John Gillespie is Professor and Director of the Asia Pacific Business Regulation Group, Department of Business Law and Taxation, Monash University.

Author: Sandy Gordon, ANU

The standoff between China and India in Ladakh has been resolved, at least for now.

After China set up five tents for 40 personnel 19 kilometres inside what India regards as the line of control, India set up similar tents facing them. Both lots of tents are now to be removed, but it is still unclear whether India is to remove any of the structures at Fukche and Chumar, as demanded by the Chinese.

The Chinese withdrawal only occurred after India hardened its position on the impending visit of Indian foreign Minister Salman Kurshid to Beijing on 9 May and the reciprocal visit of Chinese Premier Li Keqiang to New Delhi on 20 May. The Indian government was forced to harden its position by the strong public reaction to what was perceived to be its weak-kneed response to the Chinese ‘incursions’.

A disturbing feature of the incident was the way it was politicised on both sides, thus risking the protagonists being ‘locked in’ to their respective positions.

Analysts in New Delhi have argued for some time that China has adopted a tactic of creeping encroachment, taking a bit of territory here, a bit there, and turning these incremental gains into reality on the ground. But even so, the Indians are surprised by the strength of the Chinese action and its occurrence on the eve of the two scheduled visits.

Two leading experts, Ashley Tellis and Li Mingjiang, believe that the incursions reflect a new assertiveness under President Xi, which was reflected by the military action. Others, however, feel that the incident reflects genuine concern on China’s part about India developing infrastructure in border areas that Beijing regards as disputed. India counters this perception with the argument that China has itself massively reinforced its border with major airfields, roads and even a railway line.

Another possibility is that China simply miscalculated. Its intention may have been to unsettle India on the eve of the visits — tactic it adopted on the eve of then President Hu’s visit to New Delhi in 2006 when the Chinese Ambassador in New Delhi renewed China’s claim to Arunachal Pradesh, a claim India at the time believed to be dormant. The Hu visit went ahead regardless. On this occasion India’s tougher position may have caught the Chinese by surprise.

An interesting, and possibly connected, side development was that two weeks after the Chinese set up their tents, The Times of India reported a very strong statement by the convenor of India’s National Security Advisory Board, Shyam Saran, directed at Pakistan’s nuclear policies. Saran reportedly said that India would respond massively to any nuclear strike, and that ‘the label on a nuclear weapon used for attacking India, strategic or tactical, is irrelevant from the Indian perspective’.

The statement refers to Pakistan’s reported development of tactical nuclear weapons. According to Pakistan’s own statements, its supposed tactical nuclear weapons are designed to deter or interdict an Indian conventional strike. Unlike India, Pakistan does not have a ‘no-first use’ doctrine. The nuclear threshold in South Asia is thus significantly lowered by the presence of tactical weapons and Pakistan’s stated doctrine for their use.

As pointed out by veteran commentator Manoj Joshi in the 2 June 2011 issue of India Today, such tactical weapons would be operationalised at army corps level and would consequently be far more decentralised than strategic weapons. The danger that they may fall into the wrong hands, including terrorist hands, is thus greatly increased.

But Pakistan has claimed to have such weapons since 2011, so why has the Indian warning come now, and why so strident?

The plutonium enabling Pakistan to miniaturise nuclear weapons is derived from the unsafeguarded nuclear reactors built by China and now operational at Khusab. The launchers and missile technology are also likely developed from Chinese originals. It is noteworthy that Saran said in his 30 April statement, ‘Chinese assistance to Pakistan’s strategic [nuclear] program continues apace.’

From Beijing’s perspective, the settlement on the India–China border may help propagate a more reasonable image towards China in relation to Beijing’s other disputes over the Senkaku/Diaoyu Islands and the East and South China Seas.

Sandy Gordon is a Visiting Fellow at RegNet, College of Asia and the Pacific, the Australian National University.

Author: Carlyle A. Thayer, UNSW Canberra

China’s increasing assertiveness in the South China Sea is challenging US primacy in the Asia Pacific.

Even before Washington announced its official policy of rebalancing its force posture to the Asia Pacific, the United States had undertaken steps to strengthen its military posture by deploying more nuclear attack submarines to the region and negotiating arrangements with Australia to rotate Marines through Darwin.Since then, the United States has deployed Combat Littoral Ships to Singapore and is negotiating new arrangements for greater military access to the Philippines.

But these developments do not presage armed conflict between China and the United States. The People’s Liberation Army Navy has been circumspect in its involvement in South China Sea territorial disputes, and the United States has been careful to avoid being entrapped by regional allies in their territorial disputes with China. Armed conflict between China and the United States in the South China Sea appears unlikely.

Another, more probable, scenario is that both countries will find a modus vivendi enabling them to collaborate to maintain security in the South China Sea. The Obama administration has repeatedly emphasised that its policy of rebalancing to Asia is not directed at containing China. For example, Admiral Samuel J. Locklear III, Commander of the US Pacific Command, recently stated, ‘there has also been criticism that the Rebalance is a strategy of containment. This is not the case … it is a strategy of collaboration and cooperation’.

However, a review of past US–China military-to-military interaction indicates that an agreement to jointly manage security in the South China Sea is unlikely because of continuing strategic mistrust between the two countries. This is also because the currents of regionalism are growing stronger.

As such, a third scenario is more likely than the previous two: that China and the United States will maintain a relationship of cooperation and friction. In this scenario, both countries work separately to secure their interests through multilateral institutions such as the East Asia Summit, the ASEAN Defence Ministers’ Meeting Plus and the Enlarged ASEAN Maritime Forum. But they also continue to engage each other on points of mutual interest. The Pentagon has consistently sought to keep channels of communication open with China through three established bilateral mechanisms: Defense Consultative Talks, the Military Maritime Consultative Agreement (MMCA), and the Defense Policy Coordination Talks.

On the one hand, these multilateral mechanisms reveal very little about US–China military relations. Military-to-military contacts between the two countries have gone through repeated cycles of cooperation and suspension, meaning that it has not been possible to isolate purely military-to-military contacts from their political and strategic settings.

On the other hand, the channels have accomplished the following: continuing exchange visits by high-level defence officials; regular Defense Consultation Talks; continuing working-level discussions under the MMCA; agreement on the ‘7-point consensus’; and no serious naval incidents since the 2009 USNS Impeccable affair. They have also helped to ensure continuing exchange visits by senior military officers; the initiation of a Strategic Security Dialogue as part of the ministerial-level Strategic & Economic Dialogue process; agreement to hold meetings between coast guards; and agreement on a new working group to draft principles to establish a framework for military-to-military cooperation.

So the bottom line is that, despite ongoing frictions in their relationship, the United States and China will continue engaging with each other. Both sides understand that military-to-military contacts are a critical component of bilateral engagement. Without such interaction there is a risk that mistrust between the two militaries could spill over and have a major negative impact on bilateral relations in general. But strategic mistrust will probably persist in the absence of greater transparency in military-to-military relations. In sum, Sino-American relations in the South China Sea are more likely to be characterised by cooperation and friction than a modus vivendi of collaboration or, a worst-case scenario, armed conflict.

Carlyle A. Thayer is Emeritus Professor at the University of New South Wales, Australian Defence Force Academy, Canberra. The ideas in this paper were first presented at the Annual Conference of the Association for Asian Studies held at San Diego, 22 March 2013.

Author: Peter Drysdale, Editor, East Asia Forum.

The Abe administration in Japan swung quickly into action with policies aimed at lifting the economy out of its long lasting doldrums. Prime Minister Abe appointed Haruhiko Kuroda, after eight years distinguished service at the Asia Development Bank, to implement a strong reflationary program through the Bank of Japan (BOJ): the first arrow of his three arrow revival strategy.

He announced a big fiscal expenditure program, despite Japan’s heavy debt burden and uncertainty about whether he would stick by fiscal consolidation: the second arrow. And he signed on to a structural reform program, symbolically by announcing his intention to join the US-centred Trans-Pacific Partnership negotiations.

The three arrows of Abenomics — jointly conceived by Abe’s wily deputy and finance minister, Taro Aso — involves pressuring the BOJ into launching unprecedented aggressive monetary easing and setting a target of 2 per cent inflation by 2015 to support a target of 2 per cent real GDP growth (4 per cent nominal growth); a blowout of the fiscal deficit, financed through a supplementary government budget filled with new public works spending; and a program of reforms to achieve growth through stimulating private investment. As the legend has it, one or two arrows may be broken with a snap, but three together don’t bend and break so easily. Certainly, without the three prongs to Abe’s revival strategy, there are real risks from simply opening the monetary and fiscal floodgates.

The first two ‘arrows’ are crude Keynesianism and are controversial, not least because, if they work, they could bring unintended consequences for the currency and the Japanese government bond market. Abe now says that monetary and fiscal expansion are necessary in the short term at the same time as walking on both sides of the road on fiscal stabilisation. On the one hand, he says he won’t decide on whether to go ahead with the legislated consumption tax increase until October; on the other, he says he’ll meet the goal of halving the government’s primary budget deficit. One voice is for those voting in the July elections. The other is for the economic commentariat (including the Ministry of Finance), deeply worried about the effect of inflationary pressures on the bond market and interest rates.

The ‘third arrow’ of revitalisation is therefore critical for the success of all these measures. If there is no effective reform program for promoting private sector investment-led growth, the chances of a bond market collapse and a fiscal mess multiply dramatically.

However, as Kazuo Ueda, a former member of the BOJ’s policy board, notes in this week’s lead, ‘Japanese asset prices have responded in a surprising way to the announcement of a policy package by Prime Minister Abe and the Bank of Japan (BOJ) — they have gone up. In November last year, before Japan’s election, Abe declared that he would pressure the BOJ into adopting a much more aggressive monetary policy stance than was practiced at the time. If the BOJ did not comply, he hinted, the Bank would lose its independence’. The explanation is the Bank’s willingness to take on an unprecedented risk in the asset market. The Bank has bought heavily and large in assets markets. As Ueda explains, the BOJ may end up owning a large portion of the stock market and yet stock prices could stay depressed. The Bank, and through it the government, would in that event incur a huge capital loss. If the bubble succeeds in stimulating the economy and raising inflation, the BOJ and the government will suffer from significant increases in long-term interest rates. This could generate a sell-Japan type response in the asset market. Without doubt the BOJ is taking huge risks with the measures it has recently announced. This may be a necessary evil after more than a decade of deflation and economic stagnation. Hopefully, the risks will be mitigated by the adoption of effective measures to stimulate the supply side of the economy — the so-called ‘third arrow’ of Abenomics — but that is yet to be seen.

A return to stable, relatively rapid growth, requires a more flexible and competitive Japanese economy. As Harner explains, ‘restrictions, anticompetitive and onerous laws and regulations, multi-tiered, bureaucratic interference and inflexibility, relatively high taxes — all these obstacles to free market exchange and competition have sapped profitability, international competitiveness, and growth from vast swaths of Japan’s economy’.

Without getting rid of these burdens, Japan is not going to be able to grow its way out of stagnation and the risks would then be for deepening of the crisis.

Peter Drysdale is Editor of the East Asia Forum.

Author: Kazuo Ueda, University of Tokyo

Japanese asset prices have responded in a surprising way to the announcement of a policy package by Prime Minister Shinzo Abe and the Bank of Japan (BOJ) — they have gone up.

In November last year, before Japan’s election, Abe declared that he would pressure the BOJ into adopting a much more aggressive monetary policy stance than was practiced at the time. If the BOJ did not comply, he hinted, the Bank would lose its independence.

Between then and March the Nikkei 225 rose 40 per cent and the US dollar by 16 per cent against the yen. When the BOJ got a new governor, Haruhiko Kuroda, it responded to Abe’s request by offering a set of easing measures on 4 April that surprised even the market that had factored in an aggressive BOJ move. The BOJ has now set a 2 per cent inflation target, which it will try to hit in about two years by expanding base money by 100 per cent. To do so, it will aggressively buy Japanese government bonds (JGBs) and even risky assets such as exchange-traded funds (ETF) and real estate investment trusts (REITs). Following the move, the stock market went up by another 13 per cent and the yen weakened by 6 per cent against the US dollar.

The favourable response of asset prices is somewhat of a puzzle. The asset purchase program initiated under Governor Shirakawa, Kuroda’s predecessor, included purchases of JGBs, REITs and equities as well as corporate bonds and commercial papers. The market’s response to these purchases, however, was minimal. Back in 2001, under Governor Hayami, the BOJ carried out quantitative easing , and expanded base money by 60 per cent in three years. It also bought large amounts of JGBs to assist the expansion of base money  and began purchasing equities in 2002. The stock market went up for a while, but deflation remained.

One major change this time is that the measures are front loaded. Kuroda announced that the Bank had taken all measures necessary to hit the 2 per cent inflation target, while previously it proceeded more hesitantly by trying to ascertain the impact of each measure taken on the economy. But a more significant factor seems to be the Bank’s willingness to take on an unprecedented amount of risk in the asset market. This willingness can be seen in a number of BOJ actions.

First, the BOJ is now going to take duration risks in the JGB market by extending the duration of the government bonds it buys from less than three years to about seven years. And, it will buy in large amounts — three-fourths of all newly issued JGBs. Prior to the decision on 4 April, the yield on three-year JGBs was around 0.1 per cent — about the same as the interest rate on excess reserves at the BOJ. It appeared that no matter how much the BOJ bought such short-dated JGBs, the effect on asset prices and the economy would be minimal. The BOJ now hopes that the operation will push medium- to long-term interest rates to lower levels and induce investors to buy riskier assets than JGBs.

Second, the BOJ is telling investors what risks they should take. Kuroda remarked that there is room for risk premiums to decline in Japan’s stock and property market; that is, stock and property prices could go higher. The BOJ is leading the way by buying more equity-linked ETFs and REITs. Kuroda also remarked that the high liquidity of the stock market would allow the BOJ to buy more ETFs in the future. Not surprisingly, the stock market has welcomed this statement.

Beyond a certain level, such a move by the BOJ could generate bubbles in the asset market. But the Bank hopes that the bubbles, once created, will start stimulating the economy — in which case they may be subsumed by real growth and cease to have their original character.

Put differently, the move is like a ‘helicopter drop’ of money, which normally requires both fiscal and monetary authorities to be involved. But this time around, the Bank hopes that wealth effects created by the bubbles will be enough to effect a helicopter drop. In addition, the government has increased spending under the ‘second arrow’ of Abenomics. The market may have sensed the consequences of Abenomics and decided to sell the yen accordingly.

But it is unclear whether current levels of the yen and the stock market can be sustained if negative shocks hit the economy. The BOJ may end up owning a large portion of the stock market and yet stock prices could stay depressed. The Bank, and through it the government, would incur a huge capital loss in such a case. If the bubbles succeed in stimulating the economy and raising inflation, the BOJ and the government will suffer from significant increases in long-term interest rates. Moreover, a helicopter drop of money could generate a sell-Japan type response in the asset market.

Without doubt the BOJ is taking huge risks with the measures announced on 4 April. This may be a necessary evil after more than a decade of deflation and economic stagnation. Hopefully, the risks will be mitigated by the adoption of effective measures to stimulate the supply side of the economy — the so-called ‘third arrow’ of Abenomics.

Kazuo Ueda is Professor of Economics, University of Tokyo.

Author: Adam Fforde, Victoria University

It is now about a generation and a half since Vietnam opened up to the West, and a generation since Cambodia did the same.

Both countries have changed greatly, with rapid economic growth and the emergence of an internationally integrated middle class. However, they both remain plagued by deep corruption, are far from reliable international partners for the West, and face major political problems despite large programs of Western aid engagement — why?

The basic tactical and strategic weakness of Western aid donors stems from fundamental problems with the way they organise interventions. Donors organise on the basis of the belief that they can link resource commitments to predictable outcomes (this is the ‘log frame’ that underpins projects — concretising the belief in evidentially based interventions). But the data shows that this approach is deeply flawed (see Fforde, Coping With Facts — A Skeptic’s Guide to the Problem of Development, Kumarian Press, 2009). One problem is that it engenders sectarianism — different donors have different beliefs, and there is no central authority figure who can knock heads together and say what the truth of the matter is. The basic lesson from Cambodia is that wise recipients quickly learn how to ‘divide and rule’. And one thing is for sure: the recipients learn this lesson faster than donors.

Research on the effectiveness of aid methods tends to reinforce the view of whoever paid for it (that is, specific donors), rather than accurately recording what is happening in the real world.

One fundamental problem lies in the issue of ‘capacity’, which is also linked to the problem of coordination. As donors begin to supply resources (technical assistance, money and so on), which they hope will lead to economic and social development, there will appear to be a link between the resources supplied and the development ‘achieved’. But this link is not crucial. Donors spend the early stages of engagement hurriedly looking for people to disburse their aid to who can comply with their requirements to write reports, proposals and evaluations. This involves chasing people and institutions with the capacity to comply — those people with language, technical and other ‘skills’. Then funds can be disbursed and the donor can generate the activity they need to report success to their governments. Since the number of people who fit the donor’s requirements (or the ‘capacity’ for dispersal) is initially small, the process is contested, prices get bid up, and donors tend to fail to select people who are suitable in the long term (because their focus is to disburse funds in the short term). Recipients learn fast, and after a few years the game is set, as those people selected initially to disburse aid will control the funds for a long time. Add to this corruption, links within elites, the arrival and creation of new elites, and the problems facing donors are obvious. Donors are not organised to think long term. Local elites are.

The emergence of internationally integrated local middle classes also inhibits donors from engaging with ordinary local people. In both Vietnam and Cambodia most people remain rather poor (though often far better off than they were), politically disempowered and ruled by corrupt regimes more or less disposed to use repression. Mass education is of low quality. Aid donors tend to access ordinary people through surveys (often of ‘poverty’), and use methods that easily channel issues in directions acceptable to donor and local elite politics. Access to the concerns of ordinary people is limited. Backpackers, anthropologists and others often startle donor officials with what they report.

Local NGOs rely heavily upon outside support; this can be a bad thing, or not. The contrast between Vietnam and Cambodia here is striking. In Vietnam, decisions taken in the 1990s meant that donor resources went into ‘safe’ hands — structures controlled by local elites. While these structures ostensibly ‘advocated’ for disadvantaged groups, in reality they didn’t take the risky steps necessary for real engagement in civil society. As a consequence structures that could really support workers, farmers and ethnic minorities were not created. In Cambodia, donors put major resources into local NGOs, and these now engage politically with hot issues such as land conflicts. So decisions taken early need to be re-examined, and they may not be. Donors are not organised to think politically. Local elites are.

Donors quite legitimately have political goals, but they are organised on the basis of false beliefs in predictability, which, in combination with their lack of effective and long-term organisation, helps explain why they lose.

Adam Fforde is Professorial Fellow at the Centre for Strategic Economic Studies, Victoria University and Principal Fellow at the Asia Institute, University of Melbourne.

Author: Cristelle Maurin, University of Stellenbosch

A decade of sustained upward trends in the market value of metals found in seabed mineral deposits and considerable advances made in subsea technologies have reignited interest for offshore minerals exploration.

Pacific Island Countries (PICs), holding sovereign rights over vast areas of the seabed with promising mineral potential stand at the forefront of this new pioneering venture. With this opportunity also comes a responsibility, ensuring that operations on the seabed under the continental shelf regime are compliant with international law. The UN Convention on the Law of the Sea confers sovereign rights to coastal states over the seabed minerals within their exclusive economic zones (EEZs), as well as an overriding shared responsibility for the protection and preservation of the marine environment. States interested in pursuing this high-risk venture within their maritime jurisdictions will therefore need to elaborate legal regimes to effectively regulate deep sea minerals activities.

Papua New Guinea, Tonga, Fiji and the Solomon Islands are among the first countries in the world to have issued exploration licences for companies to assess the commercial feasibility of mineral resources development in their EEZs. The potential seabed wealth includes the polymetallic nodules, found predominantly in the Cook Islands; the seafloor massive sulphides, in PNG, Tonga and Fiji; and the cobalt-rich crusts in Micronesia — all first identified in the region in the 1970s and 1980s with high-value strategic metals such as copper, gold, manganese, zinc, cobalt and nickel.

Significant investments in exploration activities across the Southwest Pacific region presage prospects for a long-term source of revenue for PICs. This new economic development potential is enormously attractive for those developing nations seeking to diversify their economies, so far highly reliant on fisheries. But this remains to be balanced against the risks to the marine environment and the potential impacts on other vital industries, such as fisheries, as little is known about the bio-chemical and physical processes that sustain the ocean’s ecosystems.

To ensure effective protection for the marine environment from harmful effects which may arise from deep sea minerals activities, while guaranteeing prospective benefits are adequately channelled into developmental outcomes, coastal states will need to set up legal and institutional structures and strengthen their currently limited capacities to regulate offshore operations. Countries in the West Pacific region convened in 1999 a Workshop in Madang highlighting the new opportunities for offshore mineral development as well as the responsibilities of states to ensure such developments are socially and environmentally responsible and sustainable. Principles for the development of national offshore mineral policies were also articulated. This milestone in the development of a regulatory approach to deep sea minerals (supported by the Pacific Islands Forum, the South Pacific Applied Geoscience and Technology Commission (SOPAC) and the Metal Mining Association of Japan) is all the more important that new momentum is gathering around the exploitation of seabed minerals, with the imperative now to translate the vow into stringent legal frameworks.

The Cook Islands and the Kingdom of Tonga have taken the lead amongst PICs and are currently establishing national statutory regimes to complement the International Seabed Authority’s (ISA) efforts at the international level. Tuvalu and Niue are contemplating similar initiatives. The ISA which controls seabed activities in the ‘Area’, the part of the seabed beyond national jurisdiction upon which non-living resources are recognised as the ‘common heritage of mankind’, is in the process of elaborating a Mining Code encompassing regulations for prospecting, exploration and exploitation of seabed minerals.

Pacific Island countries can be praised for realising the importance of developing of precautionary policies and dedicated seabed minerals legislation. Nevertheless, it must be recognised that the implementation of such regimes, once established, will be a big ask for small island states with limited regulatory and operational capacities. The imbalance of power in the negotiation and enforcement of seabed mineral contracts is of concern too, and it will be opportune for regional and international organisations to consider how to assist PICs in that respect.

Last month, the Kingdom of Tonga, with the support of the Secretariat of the Pacific Community and the European Union, hosted a regional workshop on ‘Law and Contract Negotiations for Deep Sea Minerals’, for the purpose of expanding technical and legal knowledge and strengthening capacities at the regional level. As alluded to by the representatives of 14 Pacific island governments, a collaborative approach for the management and monitoring of deep sea minerals activities, and a coordinated negotiating bloc of countries, could promote sustainable and equitable development across the region, rather than mere exploitation of non-renewable resources.

Governments in the region could then leave a lasting legacy if they seized the opportunity of devising forward-looking policies for offshore resource extraction, while seeking external assistance to reinforce their capacities and bargaining powers. Resource extraction can lead to national economic development if a range of conditions are met, including effective macroeconomic management and high-quality governance institutions characterised by transparency and accountability. Equally important are consistent, reliable and predictable legal structures to attract responsible foreign investors and sound fiscal regimes that allow for sustainable revenue growth.

Learning from the experience of Melanesian countries with on-land mining, PICs should prioritise a precautionary approach and well-devised strategies to maximise returns to their nations over quick win opportunities. The pooling of resources at the regional level may be one avenue for small island states to strengthen their position to achieve those objectives.

Cristelle Maurin is Legal Consultant at the Applied Geoscience and Technology Division of the Secretariat of the Pacific Community, Fiji, and Associate to the Centre for Chinese Studies, University of Stellenbosch, South Africa.

Author: Binod Nepal, Canberra

AIDS has already claimed as many as 30 million human lives worldwide. An estimated 34 million people, mostly adults of working age, are living with HIV, the virus that causes AIDS.

Despite this UNAIDS, the peak UN agency that coordinates AIDS control programs worldwide, optimistically affirmed in its 2012 Global Report that the epidemic has come under control in much of the world. Sub-Saharan Africa, the most affected region, has shown remarkable progress in reversing the trend in HIV infections and AIDS deaths. And in Asia, several countries have contained their epidemics well before they grew out of control. The turnaround presents the best hope in the fight against the AIDS epidemic. But is Asia able to maintain the momentum?

The epidemic gripped Asian countries much later than the Americas and sub-Saharan Africa. Until the early 2000s, the course of AIDS in Asia was uncertain. Some commentators believed that it was just a matter of time before the continent succumbed to a catastrophic epidemic. In a continent that accommodates the majority of the global population, including demographic billionaires China and India, even a small rise in the rate of HIV infections would result in millions of additional HIV carriers.

Fortunately, the epidemic remained well below even the modest levels predicted by careful epidemiological analyses. More recent analyses indicate that even countries like Thailand, Cambodia and Myanmar — which were thought to have the most severe epidemics, with HIV/AIDS prevalence of one per cent or higher in the adult population — are now believed to have a less severe infection rate than previously believed. In the past decade, HIV infections declined remarkably in these countries, as well as in India, Nepal, Papua New Guinea and Malaysia. The absence of widespread sexual networks in the general population was an important advantage. But more could have been done. Many of the infections occurred in the context of a lingering policy dilemma.

It took considerable time for many countries in the region to recognise the threat of the epidemic and institutionalise large-scale responses. Success stories, though at varying degrees, are emerging. The 100 per cent condom use program, pioneered in Thailand in the 1990s, played a decisive role in reducing the spread of HIV. This program aimed at enforcing condom use at every commercial sexual encounter in the country. Though some criticised this policy as coercive, it offered hope at a time of brewing panic and other Asian countries began to adapt it when they saw the results. Condom use was not the norm in the developing societies of Asia — some countries had in place successful family planning policies that boosted the use of other contraceptive methods to very high levels while underplaying condoms, which were used sparingly. AIDS prevention agencies had to work hard to make condoms acceptable among men visiting sex workers. Health systems were weak and AIDS programs in developing countries relied heavily on outside funding. But even in the face of these obstacles, some programs achieved great results. The successful reversal of HIV infections and AIDS deaths in Cambodia through prevention and treatment programs, for example, demonstrates that with strong political will and international support it is possible to beat this devastating epidemic, even in poor societies.

The presence of multiple and often overlapping modes of transmission — such as male–female commercial sex, male–male sex and injecting drug use — makes AIDS epidemics especially challenging. Passing on contaminated blood is a very efficient mode of transmitting HIV. Drug users in Asia commonly share injecting equipment, so once HIV enters a network of drug injectors it quickly infects most members. This means that condom use programs alone are insufficient to prevent HIV in Asia, even in Thailand where a model condom policy evolved. A harm reduction approach to drug policy, which includes a needle-syringe exchange program as its core element, is necessary even if considered controversial. While this policy has worked successfully in advanced economies like Australia, authorities in Asia have found it difficult to accept, fearing that support for harm reduction may induce a further rise in illicit drug use. Evidence from small demonstration projects provided an argument to persuade sceptical policymakers, and in the 2000s some countries moved toward creating a more supportive legal and political environment. China, Indonesia, Malaysia and Vietnam have started to implement and scale-up harm reduction. These positive developments are promising.

While large-scale epidemics seem to have been averted, the region is far from safe. HIV is still a matter of concern in developing economies. Amid several success stories, the epidemic trended upward in countries such as Indonesia, the Philippines, Bangladesh and Sri Lanka. The virus survives on social fault lines: drug users, gay men, sex workers and their customers — AIDS concentrates on a vulnerable segment of the population. Its targets are not randomly assembled. They come from social groups such as labour migrants, transport workers, disaffected youth from dysfunctional families, and women from poor, broken families. An adverse environment has been created in these groups by low awareness about the virus, stigma and the lack of legal reform. This environment has allowed AIDS to survive and expand in Asia.

Antiretroviral therapy (ART), which lengthens healthy life and increases the employment prospects of HIV carriers, has recently emerged as an indispensable pillar of anti-HIV programs. The use of ART to prevent mother-to-child transmission started in the mid-1990s. A recent HIV Prevention Trials Network study demonstrated that ART can make an HIV carrier less contagious and reduce the risk of transmission to uninfected partners. But many low-income countries in this region are still far from the ideal goal of universal ART treatment. Although it has become the norm in developed economies, only an estimated 18 per cent of pregnant women who carry HIV in South and Southeast Asia receive ART.

AIDS is now less likely to make inroads into the wider population than at any time in the three-decade long history of the epidemic. Yet it is likely to remain a matter of concern in Asia for several years. The virus is transmitted among people connected to sex industries and drug markets, and encouraged by internal and external population mobility, including the flow of migrant labourers. Some vulnerable groups such as injecting drug users and gay men still have an unacceptably high risk of contracting HIV. Until there is a policy response comprehensive enough to eliminate stigma against HIV carriers and sustain itself against external funding shocks, the virus will continue to infect too many people in Asia.

Binod Nepal is an independent scholar. 

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Demographic Transition’.

Author: Hai Hong Nguyen, UQ

Vietnam has embarked on one of the greatest and most exciting political reforms in the last two decades — the rewriting of the national Constitution.

Many constitutional issues are up for debate — the role of the ruling Communist Party of Vietnam (CPV) in state organs and in society; the role of the armed forces; state versus private management and ownership of land; and the mechanisms needed to protect citizens’ and human rights. 

In February, ‘Group 72’, a collection of 72 former high-ranking Party officials, well-known intellectuals, veterans and others, completed a Western-style draft constitution and submitted it to an ad hoc parliamentary body known as the Committee for Draft Amendments to the existing 1992 Constitution. This move led many to think that the rewriting of the Constitution would be in the hands of the people, rather than in the hands of the Party. However, this feeling did not last long. A few weeks later the CPV chief mentioned what he called ‘the decay and degradation in ideology and ethics’ at a meeting outside Hanoi. The criticism was interpreted as being aimed at those who had made constitutional suggestions, including Group 72, which clashed with the CPV-directed draft.

In its submission, Group 72 suggested that in order for Vietnam to have an effective democracy it needs a multi-party system, or at least competitive elections. But this was unacceptable to the CPV, whose vision for Vietnamese democracy is socialist-oriented and CPV-led. The CPV does not reject competitive elections, but it insists that the candidates be nominated by the CPV or the Fatherland Front, a mass CPV-led organisation.

One manifestation of democracy is democratic elections that are fair, non-discriminatory and inclusive. Usually, this can only happen in a multi-party system protected by a system of checks and balances and the rule of law to ensure fair competition. To Western political theorists, Vietnam is far from having these conditions. But this does not mean it cannot have fair and competitive elections within a one-party system. A political compromise by all sides for the country’s development could create the conditions needed for fair and competitive elections within a one-party system.

The Vietnamese population seems to be strongly supportive of CPV rule. This is especially thanks to the responsiveness of the state to society’s demands, and the country’s social stability. Frequent farmer protests challenge this argument, but these protests are aimed at local government, not the central government, and there has never been a mass protest against the CPV’s rule. The role of the CPV in national independence and unification, as well as high economic growth during early Doi Moi, should be recognised, but criticisms have been levelled at the CPV for recent economic lows and rampant corruption.

The CPV must be accountable to the people, as the current draft constitution suggests — something the CPV can do by ensuring fair and competitive elections. The role it might play in these elections could be introduced as an ‘impartial judge’. This means it will let candidates compete with each other freely in compliance with the rule of law. The CPV can nominate its own candidates and will, no doubt, always do so. But it must also create space for independent candidates who are able to gather the required number of signatures. In this sense, the independent candidates do not need to have their own political parties. This is what can be labelled a ‘one party, two-candidate system’. However, to make it effective, the system must be constitutionalised.

This system is not yet in place at the national level, though a two-candidate election model has operated at the subnational level within the framework of grassroots democracy — an experimental political project initiated by the CPV in 1998. Not many independent candidates were elected due to party influence, but some were successful. Practical experience shows that a number of conditions are needed for success. They include, but are not limited to, non-intervention of the CPV, the competence and credibility of the candidate, and strong citizen participation.

Vietnam has long been seen by Western political theorists and politicians as having a one-party rule, one-candidate system. Despite political reforms, CPV candidates remain dominant in all three branches of power and many are, therefore, sceptical about the meaning of these reforms. The current rewriting of the national Constitution is a good opportunity for the CPV to begin reversing this sentiment. It should formalise the one-party, two-candidate system at the national level, following its experimental successes at the subnational level. This system would also be a good step in the direction of democratic reform. If Vietnam makes this system work, it would create a model for the other remaining communist countries to follow.

Hai Hong Nguyen is a PhD Candidate in the School of Political Science and International Studies, University of Queensland.

Author: Alicia Mollaun, ANU

Pakistan’s forthcoming elections on 11 May are monumental not just for Pakistan but for the West, which should be watching with great interest.

For Pakistan, this year’s elections mark the first time in its history that one democratically elected government will be replaced by another democratically elected government.

In the West, it is sometimes forgotten that Pakistan is so inexperienced with democracy, partly given the success of democracy in India. Following partition in 1947, India forged a democratic path while Pakistan was a slow starter. It took until 1956 for Pakistan to draft an indigenous constitution (India drafted its constitution in 1950).

The new nation of Pakistan remained democratic for a little over 10 years before a coup d’état saw General Ayub Khan installed as president. Pakistan’s first experiment with autocracy set the stage for an additional three military leaders at the helm of government: General Yahya Khan, 1969–71; General Zia ul-Haq, 1978–88; and General Pervez Musharraf, 1999–2008.

Notably, former President Musharraf has returned to Pakistan from self-imposed exile in the United Kingdom to stand for elections. However, the courts have declared him ineligible to stand for elections and have placed him under house arrest for allegedly imprisoning judges during his last year in power.

Politics in Pakistan are provincial-centric, with each of the major parties having a strong provincial power base.

In Punjab, Pakistan’s most populous province, Imran Khan’s Tehreek-e-Insaf (PTI) jostles for influence with the traditionally dominant Pakistan Muslim League–Nawaz (PML–N) led by Nawaz Sharif, the three-time former prime minister.

In Sindh, the ruling Pakistan People’s Party (PPP) dominates politically, chaired by President Asif Ali Zardari’s son, 24-year-old Bilawal Bhutto, with the Muttahida Quami Movement (MQM) also influential.

Minor parties, like the Awami National Party (ANP) and the Islamic party of Jamaat-e-Islami (JI), are also competing for seats in a coalition government. While the major political dynasties of PML–N and PPP dominate the stage, newer parties like PTI, with the charismatic Imran Khan, are competing for the spotlight.

The lead up to the 11 May election has been bloody. In Karachi, where political tensions and ethnic violence make it one of Pakistan’s most volatile cities, 12 people were killed in a single day on 30 April.

At least 50 people have been killed in pre-election violence since early April, mostly at the hands of the Taliban, who oppose Pakistan’s secular parties. Fears are growing that a major attack will occur in the days leading up to the election.

Former Prime Minister Benazir Bhutto was assassinated just weeks before the last elections in 2008, plunging the country into a state of insecurity which it has struggled to emerge from over the last five years. The recent spate of attacks has also affected voter confidence in the security of polling places, which will be worrying for parties like PTI who are relying on ‘getting out the vote’, particularly the youth vote, in order to capture seats from the long-dominant political duopoly of the PPP and PML–N.

The West should be following the outcome of this election closely. The United States in particular will be watching keenly to see how a coalition government comes together. Media in Pakistan recently reported that the PPP is predicting a coalition between the PPP and Imran Khan’s PTI, with a senior leader of the PPP publically naming Khan as a possible Prime Minister under a PPP-PTI coalition. Khan has publically stated that he will change the course of relations with the United States, with his campaign heavy on anti-US rhetoric. Whether rhetoric translates into reality will be a key concern for Washington, as President Obama’s 2014 transition out of Afghanistan looms large.

However, it is not just Pakistan’s influence in Afghanistan that should have the West interested in the outcome of the election but Pakistan’s potential time bomb of social unrest, economic malaise and chronic insecurity. A new government must come up with a plan to address Pakistan’s myriad problems, and fast. The current government’s lack of policy action to address any problems, particularly economic challenges, must not continue. New policy solutions are desperately needed to stop Pakistan’s increasing slide towards economic and social abyss. This election is make or break time for Pakistan, and will see the country move towards prosperity or languish as one of the most insecure countries in Asia.

Alicia Mollaun is a PhD candidate at the Crawford School of Public Policy, Australian National University, and is based in Islamabad.

Author: Vinh Duc Nguyen, Vietnam Academy of Social Sciences

The infant and child mortality rate has declined remarkably in most countries since 1950.

But despite worldwide efforts, the target laid down in the Millennium Development Goals (MDG) — to reduce the under-five mortality rate by two-thirds between 1990 and 2015 — appears to be unachievable, not only at the global level but also in Asia.According to recent UN estimates, the under-five mortality rate in Asia fell by almost half between 1990 and 2011, from 82 to 42 deaths per 1000 live births. At a regional level, the corresponding reductions were from 48 to 15 in East Asia, 76 to 42 in Central Asia, 116 to 61 in South Asia, 69 to 29 in Southeast Asia and 63 to 30 in West Asia. The average annual rate of decline in under-five mortality in Asia in the period from 1990 to 2011 was 3.2 per cent. The regional rate of decline was highest in East Asia (5.4 per cent), followed by Southeast Asia, West Asia, South Asia, and lowest in Central Asia (2.8 per cent). Although the reductions slightly accelerated in the last decade, this pace of decline is not fast enough for Asia and most Asian sub-regions, except East Asia, to achieve their MDG targets in child survival.

At the national level in 2011, under-five mortality rates ranged widely across countries in Asia, from 2.6 deaths per 1000 live births in Singapore and 3.4 in Japan to 54 in Timor-Leste, 72 in Pakistan and 101 in Afghanistan. Only 23 of 49 countries in Asia are on track to meet the MDG target on child survival. Twelve of them, including Bangladesh, Timor-Leste, China, UAE, Mongolia, Laos, Cyprus, Lebanon, Saudi Arabia, Turkey, Oman and the Maldives already achieved this MDG target by 2011. On the other hand, among the countries that had an under-five mortality rate of more than 20 deaths per 1000 live births in 1990, Iraq, DPR of Korea, Uzbekistan, Yemen, Pakistan and Myanmar have the lowest rates of decline in under-five mortality (less than 42 per cent) in the period 1990–2011.

It is worth examining the key determinants of child mortality in Asia. First, levels of socioeconomic development can be a proxy for many causes of child mortality. It seems clear that under-five mortality rates, which vary greatly across Asian countries, are strongly associated with levels of gross national income (GNI) per capita, especially in the groups of the most- and least-developed countries.

But UN and World Bank figures show that the pace of child mortality decline and GNI per capita may not be so strongly related. In the period 1990–2011, marked growths in GNI per capita may have significantly contributed to the steep decline in under-five mortality rates in the Thailand, Singapore, China, Laos, Timor-Leste, Turkey, the Maldives, Oman, and Lebanon but were less effective in Indonesia, Sri Lanka and most countries in Central Asia (Tajikistan, Georgia, Kazakhstan, Turkmenistan, and Azerbaijan). Of the countries with relatively low levels of economic growth, the child survival rate has increased only slightly in Myanmar, DPR of Korea and Iraq, but markedly in Mongolia, Bangladesh and Nepal. It suggests that other factors of socio-economic development may be more important than GNI per capita in influencing the decline of child mortality in most Asian countries.

Fertility and child mortality are related, particularly as demography changes, so it is not surprising that a decline in fertility contributes to the increase of child survival. Previous research confirmed that preceding birth interval, an indicator closely reflecting fertility in many populations, has considerable impacts on child survival. In nine of the twelve Asian countries that already meet the MDG target on under-five mortality by 2011, fertility rates have dropped by more than one-third since 1990.

Socio-economic development promotes child survival primarily because living conditions and access to healthcare improve. For instance, according to the UN, immunisation programs in Vietnam and Bangladesh, as well as the promotion of breastfeeding in Cambodia, have significantly contributed to declines of child mortality in these countries. The remarkable achievement of Mongolia and Nepal in child survival over the last two decades may not be strongly related to national income or educational attainment, but to their improvement of access to clean water and other hygienic conditions. Meanwhile, the slow decline in the under-five mortality rate in Iraq, Myanmar and some countries in Central Asian in the period 1990-2011 may be put down to their national economic conditions and/or their little improvement in education and healthcare. In developed countries, not only clean water and other hygienic conditions but high quality of healthcare and childcare is necessary for the decrease in under-five mortality rates to less than 10 deaths per 1000 live births.

Isolated successes in parts of Asia suggest that it is possible to reduce infant and child mortality rates quickly even without high rates of economic growth. It is reasonable that a decline in fertility rates would increase rates of child survival, especially in countries with relatively high fertility rates. Further investments on primary healthcare and basic living conditions are still necessary, but once a relatively low rate of infant mortality has been achieved such investments have little effect. The decline in child mortality rates will decelerate when countries have relatively low fertility rates, high vaccination coverage, and easy access to clean water. At that stage, the focus needs to shift to improving the quality of education, healthcare and childcare, even if these improvements seem difficult to achieve without extensive economic development.

Vinh Duc Nguyen is Doctor of Demography at the Institute of Sociology, Vietnam Academy of Social Sciences.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Demographic Transition’.

Author: Joel Rheuben, University of Tokyo

In spite of Japan’s perpetual combination of economic, diplomatic and demographic challenges — not to mention the fact that the current House of Representatives faces potential invalidation by the Supreme Court — Prime Minister Shinzo Abe continues to focus an inordinate amount of political energy on his pet project of constitutional ‘revision’.

Together with the hard-right Japan Restoration Party (JRP), Abe’s Liberal Democratic Party (LDP) is determined to first attack Article 96 of the Constitution, which sets out the mechanism by which the document can be amended. The current process requires the proposed amendment to be passed by a two-thirds majority vote of each house of the Diet followed by a simple majority in a popular referendum. Abe and others argue that the two-thirds majority requirement makes it too hard to put constitutional amendments to a popular vote. The LDP/JRP plan would make it easier to get to the referendum stage by allowing proposed amendments to be passed by a simple majority in each house.

A number of commentators have been highly critical of the proposal, fearing that it would allow conservative parties to change the Constitution at will. To be sure, it is an act of tremendously bad faith to propose making the process of amendment easier without spelling out a clear agenda thereafter. Does the LDP hope to put forward its draft for a new constitution, announced last April, in its entirety? Many of the proposed amendments are unpalatable to opposition politicians, who could currently block the draft in the upper house.

If, on the other hand, the LDP intends to continue to drip-feed amendments, will it prioritise revision of the controversial pacifist provision, Article 9, or first attend to some of the more mechanical flaws of the Constitution, such as clarifying how and when a prime minister may call an election? Knowing what could be around the corner would no doubt make voters less or more reluctant to lower the bar for change.

It is moreover slightly disingenuous to argue that it is ‘too hard’ to amend the Constitution when to date no amendment has ever been proposed or attempted — indeed, legislation enabling constitutional referenda was only passed during Abe’s previous term as prime minister in 2007.

But to argue that amendment to Article 96 ‘opens the door for a gusher of revisions’, as some commentators do, misses a rather critical point: no matter how easy or hard it is to get past the first hurdle of the Diet, any constitutional amendment proposal would still require the approval of a majority of voters.

Here the experience of Australia may be instructive. Like the Japanese Constitution, Australia’s Commonwealth Constitution can only be amended after a popular referendum approving change. However, unlike Japan, referenda proposals can be initiated by only a simple majority of both houses of the Commonwealth Parliament. Nevertheless, constitutional referenda have succeeded only 8 times out of 44 attempts in 112 years — and not once since 1977.

True, the process of amending Australia’s Constitution is further complicated by a requirement that a majority of the national population in a majority of states must approve of change. But this additional requirement has only caused the failure of proposals approved by a majority of voters on five occasions. Australia’s system of compulsory voting also no doubt affects the outcome of referenda — Abe and others may be relying in part on voter apathy to ease the passage of amendments. Nonetheless, it remains the case that convincing the Australian public of the need for constitutional change is, in the words of former Prime Minister Robert Menzies, ‘one of the labours of Hercules’.

In their 2010 book, People Power: the History and Future of the Referendum in Australia, George Williams and David Hume dissect in detail Australia’s record of constitutional referenda. They conclude that several factors are crucial to the success of a referendum. Among them, there must be a demonstrated need for amendment (such as a prior High Court invalidation), and the case for amendment must have been discussed for several years. Ideally, change should be proposed after a long period of public consultation, leading to a sense of ‘public ownership’ of the issue. Significantly, almost no referenda have succeeded without consensus between both sides of politics.

None of these factors is present in the current Japanese discourse. Far from demonstrating why the current arrangements do not work, much of the rhetoric relies on appeals to nationalism, arguing that the Constitution was imposed upon Japan, and does not reflect Japanese values.

In the absence of any past referenda in Japan it is difficult to predict whether Japanese voters would share the conservatism of Australian voters. Certainly opinion polls have consistently shown only a bare majority of the population is in favour of amendment in a non-specific sense. But Australia’s record does demonstrate that the role of the electorate as a brake on hasty constitutional amendment cannot be underestimated.

Joel Rheuben is a solicitor pursuing postgraduate studies at the Faculty of Law, University of Tokyo.

Author: Ashima Goyal, IGIDR

India’s current account deficit (CAD) rose to a record 6.7 per cent of GDP in the last quarter of 2012.

That is clearly unsustainable. But an effective cure must address the roots of the problem, for which a correct diagnosis is essential.

There are several possible explanations for such a rise in the CAD.Excess demand cannot be responsible for the higher CAD when GDP growth has fallen to below six per cent and industry is actually experiencing excess capacity.

It is possible that the high fiscal deficit (FD) is raising demand. But the government, pushed by fears of rating downgrades, has made a serious effort to reduce the FD. In the last quarter of 2012, growth in government consumption fell to 1.9 per cent, from 8 per cent in the preceding quarter, while growth in community, social and personal services, which is largely impacted by government consumption, fell from 7.5 to 5.4 per cent.

If the fall in the FD reduced growth but not the CAD, it implies government expenditure creates demand largely for non-tradable goods, not for imported goods. So excess demand may be a problem only in agriculture, where supply rigidities prevent expansion to keep up with rising demand for food. Government consumption contributes to this.

There is also a speculation-based argument, which says that if interest rates do not adequately compensate for, or are even set below, inflation rates, the resulting low/negative real interest rates encourage borrowings and imports. This leads to a higher CAD. But this argument is not credible either given that credit growth was low in the recent period. India’s CAD has also never been high in high-growth periods, when one would expect higher domestic demand to raise net imports.

If domestic absorption or aggregate demand is not responsible for the CAD, the problem might lie in imports being cheap and exports not sufficiently profitable. In that case, wouldn’t a depreciation of the rupee help?

This argument, again, has limits. The CAD was only around 1 per cent of GDP during India’s high-growth period in the mid-2000s, when the rupee was actually appreciating. After the steep depreciation following the 2008 global financial crisis, the CAD rose to about 3 percent of GDP and stayed there until 2011.Then, as the rupee fell against the dollar, from Rs 44 in July 2011 to Rs 54–55 levels, the CAD went up to over 3 per cent. Despite substantial real depreciation, export growth slowed more than import growth. To that extent, the cheaper rupee only worsened the CAD, implying that import and export demand are largely inelastic to exchange rate movements.

Another explanation points to capital flows. It says that higher capital flows lead to higher CADs, since the balance of payments must add up to zero. But this argument falls into the classic Immaculate Transfer doctrine trap. True, the capital and the current account must equal the change in reserves, but that does not mean one is directly causing the other. CAD outcomes are the result of various other macroeconomic adjustments, including in foreign exchange reserves, output, exchange and interest rates. Whatever these adjustments were, capital inflows definitely did not cause the current widening of the CAD. On the contrary, just when the CAD widened in 2011, there were capital outflows that made it difficult to finance the CAD.

A more promising explanation for rising CAD levels emphasises supply shocks that sustained high inflation over the 2007–13 period, alongside lower growth. These shocks, by impacting real incomes and generating low real returns, reduced financial savings in the economy.

The first of these cost shocks was the spiralling of global food and oil prices in 2008. Their slow release through the system owing to poorly administered price regimes kept inflation high. Capital outflows-driven rupee depreciation sustained these shocks, even when international commodity prices softened.

In 2011–2, the CAD rose by 1.5 percentage points to 4.2 per cent of GDP from 2.7 per cent the previous year. Investment fell from 36.8 to 35 per cent, but savings fell even more, from 34 to 30.8 per cent. The widening of the CAD must equal the excess of the fall in savings over the fall in investment — which is what we see here.

Within savings itself, the largest fall was in the household financial savings component: 2.4 percentage points. This, together with a 0.7 percentage point fall in the corporate savings–GDP ratio, almost covers the rise in CAD and fall in investment. In fact, the increase in household physical savings by 1.2 percentage points almost offset the 1.3 percentage point fall in public sector savings of 1.3 percentage points, as both largely impact non-traded goods.

These financial aspects were reflected in trade statistics. Inelastic demand for oil in the absence of local price pass-through, and for gold given the absence of other inflation hedges, widened the CAD. If imports of oil and gold are subtracted from the trade deficit, India actually recorded a trade surplus in this period.

What all this highlights is the inadequacies of the policy of freer import competition without building export capacity, which leads to import growth exceeding that of exports. An example of this is India’s per container trade costs, which are more than twice the East Asia average. The intensification of the European crisis lowered export demand, just as domestic supply bottlenecks raised coal imports. The real story is thus sectoral. Aggregate policy instruments such as interest and exchange rates are constrained — interest rates by their opposite effects on savings and investment, and exchange rates by their opposite effects on export demand and import costs. The correct policy response requires concerted supply-side action to reduce costs, along with a dismantling of the administered pricing regime.

Lower inflation and a better menu of savings instruments can revive financial savings. Better export capacity must be matched by a diversification of export destinations.

Ashima Goyal is Professor of Economics at the Indira Gandhi Institute for Development Research.

This article was originally published here, by The Hindu Business Line.